UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-9692
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TELLABS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3831568
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(State of Incorporation) (I.R.S. Employer Identification No.)
4951 Indiana Avenue, Lisle, Illinois 60532
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 378-8800
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None N/A
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Securities registered pursuant to Section 12 (g) of the Act:
Common shares, with $ .01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO[ ]
On July 15, 1997, 181,008,358 common shares of Tellabs, Inc. were
outstanding.
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TELLABS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Comparative
Balance Sheets 3
Condensed Consolidated Comparative
Statements of Earnings 4
Condensed Consolidated Comparative
Statements of Cash Flow 5
Notes to Condensed Consolidated Comparative
Financial Statements 7
Item 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE BALANCE SHEETS
(Unaudited) June 27, Dec. 27,
1997 1996
Assets --------- ---------
Current assets (In thousands)
Cash and cash equivalents $86,157 $90,446
Investments in marketable securities 341,138 136,421
Accounts receivable, less allowance 171,126 167,928
Inventories
Raw materials 42,249 30,961
Work in process 7,646 12,046
Finished goods 35,770 35,512
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85,665 78,519
Other current assets 2,246 2,150
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Total Current Assets 686,332 475,464
Property, plant, and equipment 294,840 267,014
Less accumulated depreciation 114,278 104,254
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180,562 162,760
Goodwill 65,749 64,785
Intangible and other assets 41,398 40,814
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$974,041 $743,823
Liabilities ========= =========
Current Liabilities
Accounts payable $44,479 $36,931
Accrued liabilities 98,912 71,258
Income taxes 24,646 23,435
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Total Current Liabilities 168,037 131,624
Long-term debt 4,083 2,850
Other long-term liabilities 12,741 10,964
Deferred income taxes 5,869 7,109
Stockholders' Equity
Preferred stock, with $.01 par value-
5,000,000 shares authorized, no shares issued - -
Common stock, with $.01 par value -
500,000,000 shares authorized 180,996,477
shares issued and outstanding at June 27, 1997
and 179,652,633 at December 27, 1996 1,810 1,797
Additional paid-in capital 114,689 94,854
Cumulative foreign currency translation adjustment (18,000) 3,937
Unrealized net holding gains on
available-for-sale securities 93,827 21,551
Retained earnings 590,985 469,137
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Total Stockholders' Equity 783,311 591,276
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$974,041 $743,823
========= =========
The accompanying notes are an integral part of these statements.
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, except per-share data)
Net sales $292,701 $189,473 $539,824 $361,729
Cost of sales 111,445 77,158 206,865 151,640
--------- --------- --------- ---------
Gross Profit 181,256 112,315 332,959 210,089
Marketing, general & admin expense 55,850 39,264 101,424 72,877
Research and development expense 37,532 24,890 70,768 46,492
Acquired in-process research
and development - 74,658 - 74,658
Goodwill amortization 1,517 706 3,023 1,317
--------- --------- --------- ---------
Total Operating Expense 94,899 139,518 175,215 195,344
Operating Profit (Loss) 86,357 (27,203) 157,744 14,745
Interest income 3,032 1,887 5,415 3,862
Interest expense (182) (501) (298) (529)
Other income (expense), net 687 (152) 21,758 420
--------- --------- --------- ---------
Earnings (Loss) before income taxes 89,894 (25,969) 184,619 18,498
Income taxes (benefit) 31,133 (7,291) 62,771 6,049
--------- --------- --------- ---------
Net Earnings (Loss) $58,761 ($18,678) $121,848 $12,449
========= ========= ========= =========
Earnings (Loss) per share * $0.32 ($0.10) $0.66 $0.07
========= ========= ========= =========
Average number of shares of
common stock outstanding * 186,356 184,284 186,006 184,162
* 1996 share amounts are restated to give effect to the two-for-one
stock split effective November 15, 1996.
The accompanying notes are an integral part of these statements.
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW
(Unaudited - In thousands)
For The Six Months Ended
June 27, June 28,
1997 1996
Cash Flows from Operating Activities: --------- ---------
Net earnings $121,848 $12,449
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 21,435 14,445
Provision for doubtful receivables 1,545 955
Deferred income taxes (1,293) (21,056)
Acquired in-process research and development --- 74,658
Gain on sale of stock held as an investment (20,803) ---
Net (increase) decrease in current assets,
net of effects from acquisitions:
Accounts receivable (10,194) 3,913
Inventories (9,466) (3,549)
Other current assets (169) (392)
Net increase (decrease) in current liabilities,
net of effects from acquisitions:
Accounts payable 8,302 (1,248)
Accrued liabilities (12,896) (7,722)
Income taxes 2,461 (8,494)
Net increase in other assets (10,265) (2,259)
Net increase in other liabilities 1,913 1,643
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Net Cash Provided by Operating Activities 92,418 63,343
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment, net (36,885) (23,797)
Payments for purchases of marketable securities (124,882) (54,247)
Proceeds from sales of marketable securities 56,844 69,738
Payments for acquisitions, net of cash acquired (7,821) (91,732)
Origination of loan receivable --- (5,822)
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Net Cash Used by Investing Activities (112,744) (105,860)
Cash Flows from Financing Activities:
Proceeds from notes payable --- 40,000
Payments of notes payable --- (5,000)
Common stock sold through stock-option plans 19,848 4,020
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Net Cash Provided by Financing Activities 19,848 39,020
Effect of exchange rate changes on cash (3,811) (54)
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Net decrease in cash and cash equivalents (4,289) (3,551)
Beginning of period cash and cash equivalents 90,446 92,485
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End of period cash and cash equivalents $86,157 $88,934
========= =========
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TELLABS, INC.
CONDENSED CONSOLIDATED COMPARATIVE STATEMENTS OF CASH FLOW (continued)
(Unaudited - In thousands)
For The Six Months Ended
June 27, June 28,
1997 1996
Supplemental Disclosures: --------- ---------
Interest paid $123 $482
Income taxes paid $46,130 $34,790
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During 1997, in acquiring all of the outstanding shares of Trelcom Oy
and certain wavelength-division multiplexing and optical networking
technology and related assets from IBM, the Company paid direct costs
totaling $8,434,000.
During 1996, in acquiring all of the outstanding shares of Steinbrecher
Corporation and TRANSYS Network's SONET product line, the Company paid
direct costs totaling $94,261,000.
In conjunction with the acquisitions, the purchase prices are currently
allocated as follows:
(in thousands) 1997 1996
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Fair value of assets acquired $1,777 $104,944
Cost in excess of fair value 8,098 22,977
Liabilities assumed (1,441) (33,660)
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Cash paid for acquisitions $8,434 $94,261
========= =========
The accompanying notes are an integral part of these statements.
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TELLABS, INC.
NOTES TO CONDENSED CONSOLIDATED COMPARATIVE FINANCIAL STATEMENTS
1. Financial Information:
The unaudited financial information reflects all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the statements
contained herein. Certain reclassifications have been made in the 1996
financial statements to conform to the 1997 presentation.
2. Basis of Presentation:
These financial statements are presented in accordance with the
requirements of Form 10-Q and consequently may not include all
disclosures normally required by generally accepted accounting
principles or those normally reflected in the Company's Annual Report on
Form 10-K. Accordingly, the financial statements and notes herein
should be read in conjunction with the financial statements and related
notes in the Company's Form 10-K for the year ended December 27, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1997, the Company's cash, cash equivalents and
marketable securities portfolio increased by $200,428,000 to
$427,295,000. The increase was primarily due to a mark-to-market
adjustment of $118,872,000 for a certain investment and additions to the
remainder of the Company's marketable securities portfolio of
$85,845,000. The Company's record earnings, combined with the
$21,396,000 received from the sale of stock held as an investment,
produced the increase in cash during the first half of 1997, offset by
payments for two first-quarter acquisitions.
Record second-quarter sales contributed to an increase of $3,198,000
in accounts receivable, net of allowance, when compared to the balance
at the 1996 fiscal year-end. The inventory increase of $7,146,000
during the first half of 1997 reflects additions late in the second
quarter in anticipation of sales during the remainder of 1997. Goodwill
increased $964,000 during the first half of 1997 primarily due to the
goodwill created as part of the first quarter acquisitions, offset by
the negative effects of exchange rate fluctuations and amortization of
the goodwill balances. Other long-term assets increased $584,000 from
the year-end balance reflecting additional capitalization of the
Company's costs to develop a globally-integrated information system,
offset by the reclassification of the remaining portion of an investment
to short-term. Accrued liabilities increased $27,654,000 from the
balance at December 27, 1996 due to a $41,806,000 increase in deferred
taxes, most of which was related to the mark-to-market adjustment of the
marketable securities, offset by payments for normal year-end
obligations.
The Company invested approximately $37,000,000 in property, plant and
equipment during the first half of the year (exclusive of the
acquisitions). These expenditures included the Company's on-going
expansion of the manufacturing and research and development capacity at
its Bolingbrook, Illinois and Espoo, Finland facilities. The Company
currently expects net capital additions for 1997 to approximate
$95,000,000, the majority of which is planned for the aforementioned
expansions, the purchase of equipment and other tangible assets to be
installed in the newly-expanded facilities, and the initial phase of the
construction of the recently announced 130,000-square-foot manufacturing
and research and development facility in Shannon, Ireland. Completion
of the Shannon facility is anticipated to occur in mid-1998.
Net working capital at June 27, 1997 was $518,295,000, compared with
net working capital of $343,840,000 at December 27, 1996. The Company's
current ratio at the end of the second quarter was 4.1 to 1. The
increase in net working capital was primarily due to the increase in the
value of the Company's marketable securities portfolio and the cash
generated by operating activities. Management believes that this level
of working capital will be adequate for the Company's liquidity needs
related to normal operations, both currently and in the foreseeable
future. Sufficient financial resources exist to support the Company's
growth either through currently available cash, through cash generated
from future operations, or through additional short-term or long-term
financing.
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RESULTS OF OPERATIONS
Sales for the second quarter of 1997 were a record $292,701,000, up 55
percent from the previous second quarter record of $189,473,000 set in
1996. The growth in sales was primarily the result of the combined
record sales of the Company's SONET-based TITAN (a registered trademark
of Tellabs Operations, Inc.) 5500 digital cross-connect systems (the
TITAN 5500 system), the MartisDXX (a trademark of Tellabs Oy)
integrated access and transport systems (the MartisDXX system), and
digital echo cancellers. The continued strength of domestic sales was
led by sales of the TITAN 5500 system, which increased 82 percent over
the same period last year. The increase in sales of the TITAN 5500
system has been driven by the continued demand for transportation of
ever-increasing quantities of voice, data and multimedia information
across telecommunications networks worldwide. International sales,
which grew almost 60 percent compared to the same quarter last year,
were led by a 70 percent increase in sales of the MartisDXX system as
sales of the system continue to expand outside the Scandinavian markets.
Also contributing to the record second quarter sales were digital echo
cancellers, which experienced an 89 percent increase over the same
period in 1996.
Earnings for the second quarter of 1997 were $58,761,000, up from the
1996 second quarter loss of $18,678,000. The loss in the second quarter
of 1996 was principally the result of a one-time research and
development charge of $74,658,000 ($54,100,000 net of tax) related to
the acquisition of Tellabs Wireless. Earnings per share were 32 cents
in the second quarter of 1997, compared with a loss of 10 cents per
share (or, excluding the effect of the research and development charge,
earnings of 19 cents per share) for the second quarter of 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," (FAS No. 128) which is
required to be adopted for the 1997 fiscal year end. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive
effect of stock options will be excluded. The impact is expected to
result in an increase of one cent to basic earnings per share for the
second quarter of 1997 and no change to the earnings per share for the
second quarter of 1996. Basic earnings per share for the six months
ended June 27, 1997 are expected to increase by two cents per share,
while no change is expected for the six months ended June 28, 1996.
The gross profit margin percentage for the second quarter of 1997
increased to 61.9 percent from 59.3 percent in the second quarter of
1996. This increase reflects highly productive and efficient
manufacturing operations during the quarter in addition to a more
profitable product mix.
Operating expenses for the second quarter of 1997 increased by 46.3
percent over the second quarter of 1996, excluding the one-time charge
to earnings for the acquired in-process research and development. This
increase in expenses reflects the Company's commitment to continued
product research and development and expansion of service and support
capabilities, both domestically and internationally. In addition, the
1997 expenses include the operational expenses for the Tellabs Transport
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and Optical Networking Groups, which were not included in operations at
this time last year. In contrast, total operating expenses for the
second quarter of 1997 decreased as a percentage of sales from 34.2
percent in 1996, excluding the one-time charge, to 32.4 percent in 1997.
Interest income contributed $3,032,000 to pretax income in the second
quarter of 1997, up 60.7 percent from $1,887,000 in the second quarter
of 1996. This increase was due to higher investment balances, offset by
lower market interest rates. Interest expense decreased to $182,000 for
the second quarter of 1997 from $501,000 for the second quarter of 1996,
in the absence of the outstanding bank debt used to finance the Tellabs
Wireless acquisition in 1996.
Other income was $687,000 for the second quarter of 1997 compared to a
loss of $152,000 for the second quarter of 1996. The strength of the
U.S. dollar against the Finnish markka and the Irish punt during 1997
was the primary reason for the shift to income from the loss incurred a
year earlier, when the U.S. dollar was weaker against these same
currencies.
The effective tax rate was approximately 34.6 percent for the second
quarter of 1997 and a benefit of 28.1 percent for the second quarter of
1996. The increase in the effective tax rate for 1997 in comparison to
the rate for 1996 is primarily due to the increase in domestic taxable
income in 1997, offset by the tax effects in 1996 of the in-process
research and development one-time charge taken in conjunction with the
Tellabs Wireless acquisition. The Company's 1997 and 1996 effective tax
rates reflect the benefits of lower foreign tax rates as compared to the
U.S. Federal statutory rate.
Sales for the first six months of 1997 exceeded the half-billion dollar
mark, reaching $539,824,000, which was an increase of 49 percent from
sales of $361,729,000 for the same period in 1996. Domestic sales
increased 47 percent for the first six months of 1997, compared to 1996,
primarily due to a 72 percent increase in TITAN 5500 system sales.
International sales for the first half of 1997 increased by 54 percent
from the same period in 1996. This increase was driven by a 67 percent
increase in MartisDXX system sales reflecting continued expansion
outside of the Scandinavian markets.
Net earnings for the first six months of 1997, which included a pre-tax
gain of $20,803,000 ($13,855,000 net of tax) for the sale of stock held
as an investment, were $121,848,000 compared to $12,449,000 in 1996,
including the one-time charge of $74,658,000 ($54,100,000 net of tax)
for acquired in-process research and development relating to the Tellabs
Wireless acquisition. Earnings per share were 66 cents for the first
six months of the year (59 cents excluding the effect of the stock sale)
compared to 7 cents for the same time period in 1996 (36 cents per share
excluding the one-time research and development charge).
The gross profit margin for the first six months of 1997 improved to an
all-time record 61.7 percent versus 58.1 percent for the first six
months of 1996. This improvement was primarily driven by a sales mix
that featured higher-margin products as well as continued manufacturing
efficiencies.
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Operating expenses for the first six months of 1997 increased 45.2
percent over the same period in 1996, excluding the one-time charge to
earnings for the acquired in-process research and development.
Contributing to the overall increase are the expenses of Tellabs
Wireless, Tellabs Transport Group, and Tellabs Optical Networking Group,
along with continuing international and domestic research and
development of products and expansion of service and support
capabilities. However, consistent with the results of the second
quarter of 1997, operating expenses during the first six months of 1997
decreased as a percentage of sales to 32.5 percent compared from 33.4
percent for the same period in 1996, excluding the one-time charge.
Interest income contributed $5,415,000 to pretax income during the first
six months of 1997, an increase of 40.2 percent from $3,862,000 in 1996.
This increase was due to higher investment balances, offset by lower
market interest rates. Interest expense was $298,000 during the first
six months of 1997 compared to $529,000 during the same period in 1996.
The higher 1996 interest expense resulted from the bank debt used to
finance the Tellabs Wireless acquisition.
Other income was $21,758,000 for the first half of 1997 compared to
$420,000 during the first half of 1996. The majority of the increase
represents the gain on the sale of stock held as an investment of
$20,803,000. In addition, foreign exchange gains increased to $875,000
during the first six months of 1997 from $236,000 during the same period
in 1996. The larger gains in 1997 were a result of the strength of the
U.S. dollar versus the Finnish markka and Irish punt.
The effective tax rate was approximately 34.0 percent for the first six
months of 1997 compared to 32.7 percent for the same period in 1996.
The increase in the effective tax rate for 1997 is primarily due to the
increase in domestic taxable income and the gain on the stock sale,
offset by the tax effects of the in-process research and development
one-time charge taken in conjunction with the Tellabs Wireless
acquisition during 1996. The Company's 1997 and 1996 effective tax
rates reflect the benefits of lower foreign tax rates as compared to the
U.S. Federal statutory rate.
The Company cautions that except for historical information, the matters
discussed or incorporated by reference in this Quarterly Report on Form
10-Q are forward-looking statements that involve risks and uncertainties
that may affect the Company's actual results and cause results to differ
materially from such forward-looking statements. Such risks and
uncertainties include but are not limited to, economic conditions,
product demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, research and new product development,
protection of intellectual property, patents and technology, ability to
attract and retain highly qualified personnel, availability of
components and critical manufacturing equipment, facility construction
and startups, the regulatory and trade environment, and other factors
indicated from time to time in the Company's filings with the Securities
and Exchange Commission. Such forward-looking statements reflect only
information available at the time of the filing of this report. As a
result, the Company undertakes no obligation to update the statements to
reflect subsequent circumstances or events.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on April 16,
1997. At this meeting, John D. Foulkes and Peter A. Guglielmi were
re-elected as directors and Jan H. Suwinski was elected to his first
term as a director. Thomas H. ("Tommy") Thompson chose not to run for
re-election. These directors were elected for a term of office expiring
at the Company's Annual Meeting of Stockholders in 2000. In addition,
the following directors are continuing in office for the terms
indicated: Michael J. Birck and Frederick A. Krehbiel for terms
expiring at the Company's Annual Meeting of Stockholders in 1998, and
Brian J. Jackman, Stephanie Pace Marshall, and William F. Souders for
terms expiring at the Company's Annual Meeting of Stockholders in 1999.
Set forth below is a separate tabulation of the votes cast for and votes
withheld with respect to each nominee for director elected at this
meeting:
Votes For Votes Withheld
John D. Foulkes 163,298,945 739,551
Peter A. Guglielmi 163,174,992 863,504
Jan H. Suwinski 163,318,078 720,418
In addition, stockholders approved the amendment to the Restated
Certificate of Incorporation which increased the authorized shares of
common stock from 200,000,000 to 500,000,000 by the following vote:
For 119,132,542
Opposed 44,542,727
Withheld 363,227
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 3.3 - Certificate of Amendment to Restated
Certificate of Incorporation dated
April 16, 1997.
Exhibit 10.15 - Severance Arrangement for John E. Vaughan.
Exhibit 10.16 - Restricted Stock Award for John E. Vaughan.
Exhibit 27 - Financial Data Schedule.
(B) Reports on Form 8-K
The Registrant filed a report on Form 8-K on July 23,
1997, prior to the filing of this quarterly report of
Form 10-Q, with respect to the issuance of a second
quarter letter to stockholders.
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TELLABS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELLABS, INC.
----------------
(Registrant)
s\ J. Peter Johnson
-------------------
J. Peter Johnson
Vice President/Controller
& Chief Accounting Officer
July 24, 1997
- ---------------- (Date)
-13-
Exhibit 3.3
CERTIFICATE OF AMENDMENT
TO RESTATED CERTIFICATE OF INCORPORATION
OF TELLABS, INC.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
We, Michael J. Birck, President and Carol Coghlan Gavin, Secretary of
Tellabs, Inc., a corporation existing under the laws of the State of
Delaware (the "Corporation"), do hereby certify on behalf of the
Corporation as follows:
FIRST: That the name of the Corporation is Tellabs, Inc.
SECOND: That the Restated Certificate of Incorporation of the
Corporation was filed by the Secretary of State of Delaware on June 24,
1992, a Certificate of Correction thereto was filed by the Secretary of
State of Delaware on March 24, 1993, a Certificate of Amendment thereto
was filed by the Secretary of State of Delaware on April 21, 1994, and a
Certificate of Amendment thereto was filed by the Secretary of State of
Delaware on May 3, 1995.
THIRD: That the Restated Certificate of Incorporation of said
Corporation has been amended as follows:
The first paragraph of Article Fourth of the Restated
Certificate of Incorporation is amended to read as follows:
1. Authorized Capital Stock. The aggregate number of
shares of stock which the Corporation has authority to issue is
505,000,000 shares, of which 500,000,000 shall be shares of common
stock, $.01 par value per share (hereinafter "Common Stock"), and of
which 5,000,000 shares shall be shares of preferred stock, $.01 par
value per share (hereinafter "Preferred Stock").
FOURTH: That the aforesaid amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware by the affirmative vote of the holders of a
majority of all outstanding stock entitled to vote at the annual meeting
of stockholders on April 16, 1997, which meeting was called and held
upon notice in accordance with Section 222 of said Law.
-1-
IN WITNESS WHEREOF, we have signed this Certificate of Amendment
this 16th day of April, 1997.
TELLABS, INC.
By: s\ Michael J. Birck
---------------------------
Michael J. Birck, President
Attest: s\ Carol Coghlan Gavin
------------------------------
Carol Coghlan Gavin, Secretary
-2-
Exhibit 10.15
SEVERANCE ARRANGEMENT
John E. Vaughan
May 1, 1997
1. If you are terminated by Tellabs other than "for cause" before May 1,
2001, Tellabs agrees: (i) to immediately vest the stock options
granted to you on May 1, 1997; and (ii) to immediately vest the
restricted shares granted to you under the terms of the Restricted
Stock Award. In such a case, we agree to continue your then-current
salary for one year beyond the date of termination. (For purposes
of this agreement "for cause" shall mean any act of deliberate
dishonesty with respect to Tellabs, conviction of a felony,
significant activities harmful to the reputation of Tellabs, refusal
to perform or substantial disregard of duties properly assigned you,
or significant violation of any Tellabs policy or any statutory or
common law duty of loyalty to Tellabs.) The term "Tellabs" means
Tellabs, Inc. and/or any of its direct or indirect subsidiaries.
2. You agree as follows:
a. To comply with Tellabs' Confidentiality and Patent Agreements.
b. Not to compete with Tellabs by accepting employment with a
direct competitor of Tellabs in the provisioning of networking
and/or transport equipment to service providers or end users of
such equipment.
c. Not to solicit, induce or attempt to persuade any supplier,
distributor, client, customer or employee of Tellabs or any of
its affiliates to terminate or breach its, his or her
relationship(s) with Tellabs or any of its affiliates.
d. The terms of this paragraph 2 will continue in effect following
any termination of employment with Tellabs for a period of
two years.
Exhibit 10.16
TELLABS, INC.
RESTRICTED STOCK AWARD
for
JOHN E. VAUGHAN
1.1 Certain Definitions
"Award" shall mean this Award which is a right to receive
Restricted Stock.
"Board" shall mean the Board of Directors of Tellabs, Inc.
("Tellabs").
"Cause" shall mean any act of deliberate dishonesty with respect
to Tellabs, conviction of a felony, significant activities
harmful to the reputation of Tellabs, refusal to perform or
substantial disregard of duties properly assigned, or
significant violation of any Tellabs policy or any statutory or
common law duty of loyalty to Tellabs.
"Committee" shall mean the Compensation Committee of the Board
of Tellabs or any successor Committee thereto.
"Common Stock" means the common stock of Tellabs, Inc.
"Disability" shall mean the inability of the Recipient to
perform substantially such Recipient's duties and
responsibilities for a continuous period of at least six months,
as determined by the Committee in its sole discretion.
"Fair Market Value" shall mean the average of the high and low
transaction prices of a share of Common Stock as reported in the
National Association of Securities Dealers Automated Quotation
National Market System ("NASDAQNMS") on the date as of which
such value is being determined, or, if the Common Stock is not
listed on the NASDAQNMS, the average of the high and low
transaction prices of a share of Common Stock on the principal
national stock exchange on which the Common Stock is traded on
the date as of which such value is being determined, or, if
there shall be no reported transactions for such date, on the
next preceding date for which transactions were reported;
provided, however, that if Fair Market Value for any date cannot
be so determined, Fair Market Value shall be determined by the
Committee by whatever means or method as the Committee, in the
good faith exercise of its discretion, shall at such time deem
appropriate.
"Recipient" means John E. Vaughan.
"Restricted Stock" shall mean shares of Common Stock awarded
pursuant to this Award.
-1-
1.2 Administration
This Award shall be administered by the Committee. The
Committee shall, subject to the terms of this Award, interpret
this Award and the application thereof, establish rules and
regulations it deems necessary or desirable for the
administration of this Award. All such interpretations, rules
and regulations shall be conclusive and binding on all parties.
The Committee may delegate some or all of its power and
authority hereunder to the President and Chief Executive
Officer or other executive officer of Tellabs or a
Subsidiary (other than the Recipient) as the Committee deems
appropriate.
2. RESTRICTED STOCK AWARD
2.1 Restricted Stock Award
Tellabs hereby grants 10,000 shares of Restricted Stock to
Recipient subject to the terms hereof.
2.2 Terms of Restricted Stock Award
This Award shall be subject to the following terms and
conditions.
a. Vesting and Forfeiture
One-half of the number of shares of Common Stock subject to
this Award shall vest and be payable on May 1, 1998 and the
other half of such number shall vest and be payable on
May 1, 1999, in each case, subject to Section 2.3, if the
Recipient remains continuously in the employment of Tellabs
or a Subsidiary until such dates. Recipient shall forfeit
the unvested portion of any such shares if Recipient does
not remain continuously in the employment of Tellabs or a
Subsidiary as specified above, except as otherwise provided
in Section 2.3 hereof.
b. Shares Certificates
Upon the vesting of a portion of the Award pursuant to
Section 2.2(a) or 2.3(b), in each case subject to Tellabs
or a Subsidiary rights to require payment of any taxes in
accordance with Section 3.2, a certificate or certificates
evidencing ownership of the number of shares of Common Stock
so vested shall be delivered to and in the name of the
Recipient.
2.3 Termination of Employment
a. Termination Resulting in Forfeiture
If (i) employment with Tellabs or a Subsidiary of the
Recipient of the Award is terminated by Tellabs or a
-2-
Subsidiary for Cause, (ii) such employment terminates by
reason of the Recipient's Disability or death, or (iii) the
Recipient voluntarily terminates his employment with Tellabs
or a Subsidiary for any reason, the portion of such Award
which is not vested pursuant to Section 2.2(a) shall be
forfeited by such Recipient and such portion shall be
canceled by Tellabs.
b. Other Termination
If Tellabs or a Subsidiary terminates the employment of the
Recipient of the Award for any reason other than as
provided in Section 2.3(a), the portion of such Award which
is not otherwise vested shall vest pursuant to Section
2.2(a) without regard to such termination and be payable
within thirty (30) days of such termination, in accordance
with Section 2.2(b).
3. GENERAL
3.1 Amendments
The Board or the Committee may amend this Award as it shall deem
advisable, provided, however, that no amendment may adversely
impact the rights of the Recipient in the outstanding Award
without the consent of the Recipient.
3.2 Tax Withholding
Tellabs shall have the right to require, prior to the issuance
or delivery of any shares of Common Stock or the payment of
any cash pursuant to the Award made hereunder, payment by the
Recipient of such Award of any federal, provincial, local or
other taxes which may be required to be withheld or paid in
connection with such Award. The Committee may allow shares
of Common Stock to be delivered or withheld having an aggregate
Fair Market Value not in excess of the minimum amount required
to be withheld and in such event, any fraction of a share of
Common Stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due
shall be paid in cash by the Recipient.
3.3 Adjustment
In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution
to holders of Common Stock other than a regular cash dividend,
the number and class of securities subject to the outstanding
Award shall be adjusted or modified accordingly, as determined
by the Committee, which adjustment may include providing for
payment of an asset not constituting a security upon the vesting
of an outstanding Award. The decision of the Committee
regarding any such adjustment shall be final, binding and
conclusive. If any such adjustment would result in a fractional
security being subject to the Award, Tellabs shall pay the
-3-
Recipient of such Award, in connection with the first vesting of
such Award, in whole or in part, occurring after such
adjustment, an amount in cash determined by multiplying (a) the
fraction of such security (rounded to the nearest hundredth) by
(b) the excess, if any, of the Fair Market Value on the vesting
date.
3.4 No Assignment
It is a condition of this Award, and the rights of the Recipient
shall be subject thereto, that no right or interest of the
Recipient shall be assignable or transferable in whole or in
part, either directly or by operation of law or otherwise,
including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge or bankruptcy, and no right or
interest of any the Recipient under this Award shall be liable
for, or subject to, any obligation of the Recipient, including
claims for alimony or the support of any spouse.
3.5 No Right of Employment
The Award made hereunder shall not confer upon any person any
right to continued employment by Tellabs, Tellabs
International, Inc. or any Subsidiary or affiliate thereof or
affect in any manner the right of Tellabs, Tellabs
International, Inc. or any Subsidiary or affiliate thereof to
terminate the employment of any person at any time without
liability hereunder.
3.6 Right as Stockholder
No person shall have any right as a stockholder of Tellabs with
respect to any shares of Common Stock or other equity security
of Tellabs which is subject to an Award hereunder unless and
until such person becomes a stockholder of record with respect
to such shares of Common Stock or equity security. Tellabs'
obligation to deliver shares of Common Stock pursuant to this
Award shall be unfunded, and Tellabs shall not be obligated to
set aside any of its assets for the purpose of satisfying its
obligations hereunder. The claims of the Recipient of an Award
shall be solely those of an unsecured creditor of Tellabs.
3.7 Governing Law
The corporate law of the State of Delaware shall govern all
issues concerning the relative rights of Tellabs and the
Recipient with respect to this Award. The law of the State of
Illinois, except its law with respect to choice of law, shall be
controlling in all other matters relating to the Award.
3.8 Effective Date
This Award shall become effective on May 1, 1997.
-4-
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<LEGEND>
This schedule contains summary financial information extracted from the
June 27, 1997, Income Statement and Balance Sheet and is qualified in
its entirety by reference to such 10-Q.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-END> JUN-27-1997
<CASH> 86157000
<SECURITIES> 341138000
<RECEIVABLES> 176221000
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<CURRENT-ASSETS> 686332000
<PP&E> 294840000
<DEPRECIATION> 114278000
<TOTAL-ASSETS> 974041000
<CURRENT-LIABILITIES> 168037000
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<COMMON> 1810000
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